Isuzu 2008 Annual Report Download - page 29

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Financial Section n Isuzu Motors Limited Annual Report 2008
the reduction of interest-bearing debt, the balance of which stood at
¥256,776 million at the end of the year, a reduction of ¥40,451 mil-
lion from the previous year. The Group remains vulnerable to the risk of
higher interest payments having a negative impact on its performance
and financial position should market rates rise sharply.
3. Foreign exchange fluctuations
The business of the Isuzu Group includes manufacturing and mar-
keting products in several regions around the world. Local currency
amounts for sales, expenses, assets, and other items are therefore con-
verted into Japanese yen in the preparation of Isuzu’s consolidated
financial statements. Depending on the exchange rate in effect at the
time of conversion, the yen amount for these items may change even
if the underlying local currency value has not changed. Moreover, be-
cause foreign exchange fluctuations influence the prices paid by the
Group for raw materials denominated in foreign currencies as well as
the pricing of the products the Group sells, they may have a negative
impact on the Group’s performance and financial position. Generally, a
strengthening of the yen relative to other currencies has a negative im-
pact on the Group’s business, and a weakening of the yen has a
positive impact.
4. Dependence on General Motors Corporation and other
major customers
The Isuzu Group supplies vehicle components to General Motors
Corporation (Detroit, MI) and its affiliates as well as to other vehicle
manufacturers. Sales to these customers are affected by fluctuations
in production and sales at these customer companies and other fac-
tors over which the Isuzu Group has no control, and therefore they
could have a negative impact on the Group’s performance and financial
position.
5. Suppliers and other providers of parts, materials, etc.
The Isuzu Group sources the raw materials, components, and prod-
ucts required for production from outside suppliers. Should supply-de-
mand conditions significantly exceed suppliers’ capacity, it is possible
that Isuzu may be unable to source these items in sufficient volume.
Shortages or delays in the supply of parts and other materials could
have a negative impact on the Group’s performance and financial posi-
tion. It is also possible that a tight supply-demand situation would result
in price increases for raw materials and other supplies, which could also
have a negative impact on the Group’s performance and financial posi-
tion by triggering rising costs if the increases cannot be absorbed inter-
nally, for example through improved productivity, or passed on to sales
prices.
6. Product defects
At its plants both inside and outside Japan, the Isuzu Group manu-
factures products according to the strictest globally accepted quality
control standards. However, in the unusual event of a large-scale recall
or product liability award (the Group is covered by product liability in-
surance, but in the case of costs exceeding insurance coverage), there
could be a negative impact on the Group’s performance and financial
position .
7. Joint ventures
The Isuzu Group engages in business in some countries in the form
of joint ventures due to legal and other requirements in those countries.
Changes in the management policy, operating environment, etc., of
these joint ventures could affect their performance, which could in turn
produce a negative impact on the Group’s performance and financial
position.
8. Disasters, power outages, and other interruptions
The Isuzu Group regularly conducts disaster prevention inspections
and facilities examinations at all sites in order to minimize the potential
of a negative impact due to an interruption in the manufacturing pro-
cess. However, the Group may not be able to completely eliminate or
minimize the impact that would arise from a disaster, power outage, or
other interruption during the manufacturing process.
9. Securities investments
The Isuzu Group invests in securities to produce, sell, and distribute
its products as well as to build and maintain good relationships with its
business partners. For marketable securities, a downturn in share prices
could have a negative impact on the Group’s performance and financial
position. Isuzu provides management guidance and advice to compa-
nies—including those in which it has invested through non-marketable
securities—that can have a strong influence on its own business results.
However, if the financial condition of the companies in which Isuzu has
invested were to deteriorate due to factors such as a worsening busi-
ness environment, this could have a negative impact on the Group’s
performance and financial position.
10. Retirement obligations and deferred tax assets
The figures recorded for “retirement obligations” and “deferred tax
assets” are estimates that reflect the judgment of management. Due
to the uncertain nature of estimates, in some cases actual results may
vary from initial estimates, and this could have a negative impact on the
Group’s performance and financial position.
11. Potential risks associated with international activities
and foreign ventures
The Isuzu Group conducts some of its manufacturing and marketing
activities outside of Japan, in the U.S. and in developing and emerging
markets in Asia. The following risks are inherent in such overseas busi-
ness development and could have a negative impact on the Group’s
performance and financial position:
• Unfavorable changes in the political or business climate
• Difficulties in recruiting and retaining personnel
• Inadequate technological infrastructure could have a negative
impact on the Group’s manufacturing activities or its customers’
support of its products and services
• Potential negative tax consequences
• Social unrest stemming from terrorism, war, or other factors
12. Limits on intellectual property protection
The Isuzu Group has accumulated technology and expertise that dif-
ferentiate it from its rivals; however, in certain regions due to legal re-
strictions the Group is unable to fully protect, or can only partly protect,
its proprietary technology and expertise through intellectual property
rights. As a result, the Group may be unable to effectively prevent third
parties from using its intellectual property to make similar products.
13. Legal requirements
The Isuzu Group is subject to various government regulations in the
countries in which it does business, such as business and investment
approvals, statutes related to national security, tariffs, and other im-
port and export regulations. The Group is also subject to legal require-
ments concerning areas such as commerce, antitrust, patents, consumer
rights, taxation, foreign exchange, environment conservation, recy-
cling, and safety. Unexpected changes in these regulations could have
a negative impact on the Group’s performance and financial position.
Exhaust emissions regulations are generally being tightened amid grow-
ing environmental awareness. Since substantial investment is required
to comply with these regulations, failure to generate sufficient sales to
recover this investment could have a negative impact on the Group’s
performance and financial position.